Increase profits with flat rate service pricing

The Financial Power of Flat Rate Service Pricing

About 95% of all HVAC dealers have one trait in common: they are not charging enough for their service work. So, why is it important to charge enough? Charging enough allows a dealer to stay in business for many years thus ensuring continuous service to his customers. Charging enough allows a dealer to pay his employees good wages and to provide important benefits for those employees so they stay with the dealer for years to come. Charging enough allows a dealer to offer excellent employee training which equates to excellent customer service. Charging enough helps the dealer to provide a good living for his family. Charging enough insures the dealer that there will be enough money for his retirement.

Flat Rate Service Pricing allows any dealer to charge enough and to charge fairly for his time, expertise, capital outlay, employee well-being, expenses and profitability.

So, how does Flat Rate Pricing allow a dealer to charge enough? That is best shown by examples.

Flat Rate Service Pricing Examples

First, some assumptions: Assume a dealer has two Service Techs and that each Tech does an average of two service calls per day each week for 50 weeks per year. (That is probably a very low amount of calls but it is important to be as realistic as possible.) We will also assume that an average service call takes one hour. In these examples we will consider parts pricing and markup to be the same in all examples, so only the labor changes.


Example 1: The old way of doing things

Under the old way of pricing (usually called time and material pricing) the dealer would charge $60 per hour for his labor (fill in your labor rate here). Therefore, using our assumptions above the dealer would bring in labor revenue per year for his two service techs of $60,000.
(2 Techs X 2 calls per day X 5 days per week X 50 weeks per year X $60 per call = $60,000)

Example 2.1: The new way of doing things

Under the Flat Rate Service Pricing example the dealer would still charge $60 per hour for his labor. But, with Flat Rate Service Pricing the dealerӳ labor revenue would be $109,000. That is because the dealer will now also be charging $49 for each Diagnostic Call.
(2 Techs X 2 calls per day X 5 days per week X 50 weeks per year X $60 per call = $60,000) + (2 Techs X 2 calls per day X 5 days per week X 50 weeks per year X $49 per Diagnostic Call = $49,000) = $109,000

Example 2.2: Allowing discretion in your labor rates

Finally, in our last scenario, under Flat Rate Pricing a dealer can raise his labor rate without the customer ever knowing what his labor rate really is. That is because the dealer labor rate is never broken out for the customer; it is only included in the Flat Rate Price. Therefore, letӳ assume that the dealer now has a labor rate of $90 per hour. The dealer yearly labor revenue would now be $139,000.
(2 Techs X 2 calls per day X 5 days per week X 50 weeks per year X $90 per call = $90,000) + (2 Techs X 2 calls per day X 5 days per week X 50 weeks per year X $49 per Diagnostic Call = $49,000) = $139,000

The dealer in Example 2.1 and 2.2 can increase their labor revenue over Example 1 dealer by $49-$79,000 a year just by implementing Flat Rate Service Pricing.

And that is the financial power of Flat Rate Service Pricing!

Is your company switching to Flat Rate Service Pricing? Let us know below with a comment.


 

Cal Berry

Cal Berry

former Vice-President of Sales and Marketing – Retired at cfm Distributors, Inc.
Cal is a former Vice-President of Sales and Marketing for cfm Distributors with over 30 years’ experience in the HVAC industry.Now retired, he still assists cfm as an educational helper in HVAC product knowledge and marketing.
Cal Berry